New Jersey Division of Local Government Services Local Finance Notice 2026-12
New Jersey Division of Local Government Services Local Finance Notice 2026-12
LFN 2026-12 restates the rules governing local unit deferred compensation plans under N.J.S.A. 43:15B-1 et seq. and N.J.A.C. 5:37-1.1 et seq. It incorporates the federal SECURE Act and SECURE 2.0 changes and, for the first time, imposes annual compliance certifications.
Any municipality, county, authority, or fire district offering a Section 457(b) plan should review the Notice with its plan administrator, contractor, and auditor.
New Certification Requirement — First Deadline September 30, 2026
For 2026, compliance certifications are due by September 30. Beginning in 2027, the Division will provide 30 days’ notice and submissions will be due January 31 annually. Primary contact changes are due each December 1.
Local units and contractors must also certify that no amendment was implemented without prior Director approval and written notice to participants. Noncompliance triggers a hearing before the Division and a 60-day cure period; contractors that fail to cure become ineligible for future plan approvals.
Automatic Enrollment Is Now Permitted
Effective January 20, 2026, P.L. 2025, c.358 allows local units to automatically enroll employees at a default deferral percentage, provided the plan gives advance notice, allows employees to opt out or elect a different amount, and designates a default investment. Periodic increases and reenrollment are also permitted.
Labor consideration: automatic enrollment terms must be negotiated with unions. Absent a written agreement, union-represented employees must affirmatively elect to participate.
SECURE 2.0 — Plan Documents May Be Out of Date
Plans approved between January 1, 2020 and December 31, 2022 containing original SECURE Act language must be revised. Key changes include:
- RMD age: 73 for those attaining 72 after 2022; 75 for those attaining 74 after 2032
- Roth catch-up contributions required for participants earning $145,000 or more in the prior year
- Enhanced catch-up for ages 60–63 — the greater of $10,000 or 150% of the regular limit
- Cash-out limit raised from $5,000 to $7,000; RMD excise tax cut from 50% to 25%
- New penalty exceptions for terminal illness, emergency expenses, and domestic abuse, plus self-certified hardship withdrawals
IRS Notice 2024-02 governs amendment deadlines. Employers should confirm updates were made and that distributions were calculated correctly.
Director Approval and Plan Establishment
No plan, service agreement, or amendment may take effect before Director approval, which is issued within 20 business days of a complete application. Amendment submissions now require redlined and clean copies, an amended Registration Form, model resolution language, and legal certification of IRC Section 457(b) compliance.
Prototypical plans require written proposals from at least two contractors. Self-administered plans must be prepared only in consultation with employee representatives — contractor templates may not be used. Draft resolutions should be submitted to the Division before adoption.
Investments and Administration
Plan assets may be invested only in bank interest-bearing accounts, the New Jersey Cash Management Fund, annuities, mutual funds, life insurance, or collective investment trusts, and must be invested within 72 hours under N.J.A.C. 5:37-9.4, excluding Sundays and holidays.
The employer remains responsible for administration and reporting. Requirements include bonding of at least 100% of managed funds, contractor liability and errors-and-omissions insurance, quarterly participant reports, annual SOC 1 (SSAE No. 18) reports, and audit of all plan funds.
Plan assets may be invested only in bank interest-bearing accounts, the New Jersey Cash Management Fund, annuities, mutual funds, life insurance, or collective investment trusts, and must be invested within 72 hours under N.J.A.C. 5:37-9.4, excluding Sundays and holidays.
Key Takeaways for Local Units
The Notice converts deferred compensation from a routine benefit into an annual compliance obligation. Local officials should calendar the September 30, 2026 certification deadline, confirm plan documents reflect SECURE 2.0, and review contractor bonding and SOC 1 reporting. Units weighing automatic enrollment — or options such as emergency savings accounts or student loan matching — should begin the approval process now.
Local Finance Notice 2026-12
Please follow the link below to read more about these items and guidance on how your local unit can implement them: https://www.nj.gov/dca/dlgs/lfns/2026/2026-12.pdf
Contact Wielkotz & Company, LLC Today
For further information on Local Finance Notice 2026-12 and its implementation feel free to reach out to Steven Wielkotz at (973)-835-7900 ext. 201 or sdw@w-cpa.com.
